Correlation Between California Resources and PrimeEnergy
Can any of the company-specific risk be diversified away by investing in both California Resources and PrimeEnergy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining California Resources and PrimeEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Resources Corp and PrimeEnergy, you can compare the effects of market volatilities on California Resources and PrimeEnergy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in California Resources with a short position of PrimeEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Resources and PrimeEnergy.
Diversification Opportunities for California Resources and PrimeEnergy
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between California and PrimeEnergy is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding California Resources Corp and PrimeEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrimeEnergy and California Resources is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on California Resources Corp are associated (or correlated) with PrimeEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrimeEnergy has no effect on the direction of California Resources i.e., California Resources and PrimeEnergy go up and down completely randomly.
Pair Corralation between California Resources and PrimeEnergy
Considering the 90-day investment horizon California Resources is expected to generate 2.22 times less return on investment than PrimeEnergy. But when comparing it to its historical volatility, California Resources Corp is 1.72 times less risky than PrimeEnergy. It trades about 0.25 of its potential returns per unit of risk. PrimeEnergy is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 16,301 in PrimeEnergy on August 28, 2024 and sell it today you would earn a total of 4,089 from holding PrimeEnergy or generate 25.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Resources Corp vs. PrimeEnergy
Performance |
| Timeline |
| California Resources Corp |
| PrimeEnergy |
California Resources and PrimeEnergy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Resources and PrimeEnergy
The main advantage of trading using opposite California Resources and PrimeEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Resources position performs unexpectedly, PrimeEnergy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in PrimeEnergy will offset losses from the drop in PrimeEnergy's long position.| California Resources vs. Berry Petroleum Corp | California Resources vs. Magnolia Oil Gas | California Resources vs. Comstock Resources | California Resources vs. Gulfport Energy Operating |
| PrimeEnergy vs. Epsilon Energy | PrimeEnergy vs. Crescent Energy Co | PrimeEnergy vs. Evolution Petroleum | PrimeEnergy vs. MorningStar Partners, LP |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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